If something unexpected were to happen to you or your spouse, how would your family be affected financially? Could your debts be repaid? Where would the family’s new source of income come from?
While we’ve all had the thought “it won’t happen to me” the statistics tell a different story. In fact, 2 out of 3 Australians will be disabled for more than one month!
Most Australians have car insurance – but when it comes to insuring our greatest asset, ourselves, over 95% of us aren’t adequately insured. Personal protection insurance is designed to provide peace of mind and protect you and your loved ones from unforeseen circumstances.
But what exactly is personal protection insurance, do you really need it, and how do you choose the right insurance for you?
Types of personal protection insurance
There are many types of personal insurances that may be relevant to you at different stages of your life. The most common personal protection insurances are:
- Life Cover (term life insurance / death cover): Life cover pays a lump sum to your nominated beneficiaries (eg your partner or other family members) in the event of your death, or if you are diagnosed with a terminal illness.
- Income Protection Insurance: provides a benefit, usually paid monthly, to help replace a portion of your income if you are unable to work due to serious illness or injury.
- Total and Permanent Disability Insurance (TPD): provides a lump sum payment if you become totally and permanently disabled and are no longer able to work.
- Trauma Insurance (critical illness cover): provides a lump sum of money if you are diagnosed with a specified illness, for example cancer, heart attack or a stroke.
- Keyperson Insurance: While this one is technically not classed as a “personal protection insurance”, if you’re a business owner key person insurance protects your business in the event that a key person, such as a partner or director, dies or becomes unable to work. The funds can be used to make sure the business keeps running and to cover costs associated with losing the key person, such as the costs of recruiting and training a replacement or repaying outstanding debts.
Do you need personal protection insurance, and when is the right time to get it?
There are many factors to consider when deciding what type of personal protection insurances will be right for you, including your age, stage of life, family composition, and your existing income streams.
A financial adviser can help you to determine the mix and make-up of your personal insurance policies, but one of the key questions to ask yourself is
In the event of an unforeseen circumstance, how much will my family need to cover their living expenses (including mortgage, debts, school fees), and how much will they receive?
It’s recommended that everyone reviews their level of life insurance cover whenever they experience a change in income levels or change in life stages.
If any of the following have happened to you recently, it could be time to review your personal insurances (or reassess your needs):
☐ Have you recently been married or divorced?
☐ Have you bought a home?
☐ Have you started a family?
☐ Have you received a pay rise?
☐ Have you taken out a loan?
☐ Have you gone into business with a new partner?
☐ Has a friend or family member experienced an accident or emergency?
☐ Have you recently experienced a trauma, illness, or emergency?
☐ Have you retired or are you thinking about retiring?
This are just a handful of circumstances that could suggest it’s time to review your insurance.
How do you ensure you’re protected?
With so many providers and policies on the market, and the complex legal jargon that typically forms insurance product disclosure statements, it can be difficult to know whether your insurance policy/mix is really right for you. We’d always recommend you seek advice on the policy, coverage, and the claims history of the provider to provide peace of mind that you’re protected in the even you need to make a claim.
For our own clients we regularly review their personal protection insurances in line with their broader financial circumstances and goals, and we’d recommend you do the same at least annually (or whenever you tick off on one of the above events!). If you’d like assistance in confirming your insurance mix is right for you, take advantage of a complimentary consultation with one of our team. Click here to contact us to organise a no-obligation meeting.